During the second quarter of 2021, US businesses continued to build their cash and short-term investments at a significantly higher rate than the previous quarter, according to the AFP Corporate Cash Indicators (CCI), a quarterly survey of senior corporate treasury and finance executives conducted by AFP and underwritten by Wells Fargo Asset Management. 

While treasury and finance professionals are currently in a stronger financial position compared to last year, they continue to be cautious with their cash holdings due to future uncertainty.

"It is challenging to predict what the future holds, and it is not surprising that treasury and finance professionals continue to be cautious with their organisation’s cash and investments," said Jim Kaitz, president and CEO of AFP. "However, it is encouraging that with the gradual post-pandemic healing, organisations are reporting stronger results and moving in the right direction."

Main cash management headlines

Fifty-six percent of organisations held larger cash and short-term investment balances at the end of Q2 2021 than the previous quarter, primarily due to improved business performance, while 13% reduced cash holdings due to worsening business performance.

Fifty-nine percent of organisations held greater cash and short-term investment balances at the end of Q2 2021 than they had one year earlier, while 14% held smaller cash balances relative to a year ago. The difference of 45 is 16 points higher than the July 2020 reading, indicating a faster pace of cash accumulation than a year ago.

Thirty-four percent of organisations anticipate increasing cash and short-term investment balances over the next three months. This result was shown in the forward-looking indicator of +8, which increased 7 points from last quarters reading. Organisations planning to increase their cash balance during Q3 are doing so primarily due to improved business performance.

These results are based on 101 responses from senior treasury and finance professionals this quarter.

"Consistent with this quarter's CCI survey results, we are finding that our clients are focused on preserving and in a notable number of cases, increasing cash and short-term investments in an effort to safeguard against future uncertainty," said Yeng Butler, head of Investment Solutions and Liquidity Client Group at Wells Fargo Asset Management. "That said, stronger business performance and an improving economic outlook offer signs of optimism heading into the second half of the year."

Methodology

Each quarter, AFP asks senior select treasury and finance professionals representing a broad cross section of US businesses the same questions: whether their company’s short-term holdings increased or decreased in the past year and past quarter; whether investment selections for those holdings changed; and whether they expect cash holdings to increase or decrease in the coming quarter.

Participants manage their companies’ cash and short-term investment portfolios and are fully aware of their companies’ liquidity needs and business strategies. Since corporate decisions to grow/shrink the size of cash and short-term investment portfolios reflect their business outlook and direction, changes reported by this broad group of companies are indicators of economic activity. The next set of data is slated to be published on 25 October 2021.